Australia Biofuels Annual November 2018
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THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 11/7/2018 GAIN Report Number: AU1829 Australia Biofuels Annual November 2018 Approved By: Rey Santella, Agricultural Counselor Prepared By: Roger Farrell, Agricultural Specialist Report Highlights: Australia’s biofuels industry situation has not experienced any drastic changes and essentially remains the same as last year. Biofuel mandates do not cover the entire country and are modest compared to other countries with biofuels support programs and initiatives. With minimum mandate support, biodiesel production and imports have sharply decreased, due to lower world crude oil prices and high feedstock prices. Total biofuel production for 2019 is forecast to be stable at 290 million liters (ML), comprised of 250 ML of fuel ethanol and 40 ML of biodiesel. Fuel ethanol accounts for only 2 percent of total petrol sales across Australia. Second-generation biofuels, such as energy crops and algae-based fuels are not yet commercially viable. An advanced biofuels plant is being built in Queensland to produce fuel for military, aviation, and marine applications, but it is not yet operational. Commodities: Biofuels, Wheat, Sugar, Sorghum, Trade Policy Post: Canberra I. EXECUTIVE SUMMARY Australia is a major importer of crude oil and refined products for transport fuels; although overall it is a leading international exporter of energy. Biofuels account for only 0.5 percent of energy use and 2 percent of petrol sales. There has been a continued decline in domestic refining capacity for transport fuels and a significant rise in import dependence, with 85 percent of refinery feedstock and 45 percent of refined production consumption now met from imports. The biofuel industry has significantly contracted in recent years due to lower world crude oil prices, high feedstock prices and a changing policy framework. Total biofuel production for 2019 is forecast to be stable at 290 ML, comprised of 250 million ML of ethanol and 40 million ML of biodiesel. Biofuel production has been stable since 2017, after peaking in 2014 at 400 ML, with consumption approaching 800 ML, including biofuel imports. Production of ethanol is supported by a 6 percent mandate in New South Wales (NSW), while a 3 percent mandate in Queensland took force in 2017. The largest ethanol producer in Australia is Manildra, which manufactures ethanol from wheat waste and supplies the NSW market. Two smaller producers in Queensland manufacture ethanol from sorghum grain and sugar respectively. Imports of bioethanol from all sources appear uncompetitive with standard fuels under the current excise tax regime. By contrast, production of biodiesel has collapsed due to high costs for feedstock (such as tallow) and low world oil prices. A surge in biodiesel imports occurred in 2013-15, building up stocks and keeping consumption higher than it would have been otherwise before the excise rebate scheme closed partly due to higher crude oil prices, which fell from mid-2014. Imports of biodiesel from all sources are subject to the full excise and re uncompetitive with standard diesel imports. These developments reduced the scale of the biodiesel market and the B2 mandate in NSW and related tax relief was insufficient to prevent firms leaving the industry. The largest biodiesel producer, Australian Renewable Fuels (ARF), closed in early 2016. Exports of tallow to Singapore for the manufacture of renewable diesel have increased significantly in recent years, reflecting reduced demand from biofuel refineries in Australia. Europe is the main destination for exports of Australian canola for use in the production of biofuels. Second-generation biofuels such as energy crops and algae-based fuels have been successfully demonstrated, but there is no commercial production and no subsidy scheme to support commercial sales. A significant research effort has been initiated by a number of research agencies in the development of first generation and second generation biofuels. The Queensland government has introduced a number of programs aimed at making the state a center of bio-manufacturing and biofuels production. It also hopes to develop the commercial production of biofuels for military, maritime and aviation uses. Since launching a 10-year roadmap in 2017, the Queensland government has directly supported proposals for nine new or expanded bio-refineries, but none have reached commercialization. There are no comprehensive statistical series provided by the biofuels industry or the Australian government that shows the complete picture of biofuels sector. This report builds annual supply/demand balances using available sources such as excise tax rebate statistics, industry statistics on plant capacity, and greenhouse gas emissions estimates by the Australian government. Most biofuel plants have excess capacity and many have closed in recent years. II. POLICY AND PROGRAMS International Australia is a member of the Asia-Pacific Economic Cooperation (APEC) Energy Working Group which includes a biofuels task force. This is an international grouping of countries seeking to make biofuels a more viable and sustainable transport fuel. Other members of the taskforce include Brazil, Canada, Japan, New Zealand, Malaysia, Mexico, Singapore, Taiwan, Thailand, the United States, and Vietnam. Bioenergy Australia is active in the International Energy Agency’s Bioenergy group and Australia is participating in the development of ISO sustainability criteria for bioenergy. Fuel Taxes – Excise and Import Duties Biofuels are taxed at lower rates than their fossil fuel equivalents, but this support is scheduled to decline over the period to 2030. Imported fuel ethanol and biodiesel are taxed at the higher rates thus, disadvantaged compared to domestic biofuels. Imports of petroleum products, such as petrol and diesel attract a customs duty equivalent to the excise on domestically refined products. Domestic fuel ethanol and biodiesel are subject to lower rates, but the excise tax rates on these fuels are gradually increasing. The fuel excise tax is indexed to movements of the Consumer Price Index and is administered by the Australian Taxation Office. As of October 2018, the following excise rates apply (see table 1 below). Table 1: Excise rates for fuel in Australia, 2018 (A$/liter) Tariff item Description Excise rate 10.1 Petroleum fuel 0.412 10.6 Diesel fuel 0.412 10.2 Fuel ethanol 0.081 10.2 Biodiesel 0.041 Source: Australian Taxation Office. Under current arrangements, the excise duty on locally produced fuel ethanol will gradually increase to one-third the excise rate for petrol by 2030. Imported ethanol is subject to the full excise rate applying to petrol. The excise duty on locally produced biodiesel will gradually increase to one half of the excise rate for diesel by 2030. Since mid-2015, imported biodiesel has been subject to the full rate of excise tax applied to domestically produced diesel. Australian Fuel Standard for Biofuels Federal government regulations apply to the quality of petrol and diesel fuel in Australia. The Fuel Quality Standards Act 2000 provides a legislative framework for setting national fuel quality and fuel quality information standards. Fuel quality standards apply to petrol, diesel, biodiesel, autogas and ethanol E85. The standards aim to reduce the amount of toxic pollutants in vehicle emissions. A fuel quality information labelling standard covers Ethanol (in petrol) and Ethanol E85. Under the E10 fuel standard, suppliers who supply petrol containing ethanol must comply with the Fuel Quality Information Standard (Ethanol) Determination 2003 (labelling standard). This labeling standard is in place to inform consumers that the fuel they are purchasing contains ethanol. The Australian Government capped the level of ethanol that can be added to petrol at 10 percent in July 2003. This followed vehicle testing that suggested that petrol containing ethanol blends of 20 percent or more could cause engine problems in some older vehicles. A requirement to label ethanol blend petrol was introduced in March 1, 2004 and amended in January 2006 to simplify the labelling standard. Under the Fuel Quality for Ethanol-e85 (a fuel blend of 70–85 percent ethanol with the remainder petrol), the fuel may only be used in cars that have been specifically built or modified to use E85. These include flexible-fuel vehicles and V8 racing supercars. The Fuel Quality Standard for Biodiesel defines biodiesel as “a diesel fuel obtained by esterification of oil derived from plants or animals.” NSW Government Biofuels Policy NSW introduced an ethanol biofuels mandate in 2017 to encourage broader use of ethanol and other biofuels in the State. Most cars in NSW that use unleaded petroleum (ULP) can use 10 percent ethanol-blended fuel. The NSW government has a legislated ethanol supply mandate of E6 for wholesale companies and a requirement for retailers with 20 or more outlets to offer ethanol product for sale. Under the NSW Biofuels Act 2007, a certain percentage of the total volume of petrol sold in NSW is required to be ethanol and a certain percentage is required to be biodiesel. The main objective of the policy is to support the development of a sustainable biofuels industry in NSW. The Act has a number of secondary objectives, including (a) improving air quality; (b) addressing climate change by reducing greenhouse gas emissions;